India Inc takes swap route to beat FCCB redemption blues
Abhineet Kumar / Mumbai November 21, 2009, 0:43 IST
Indian companies have discovered a new path to beat the redemption pressure on their Foreign Currency Convertible Bonds (FCCBs). They are swapping the old FCCBs, which had high conversion premium, with new bonds at a much lower rate.
FCCBs worth $12.7 billion, issued by 185 companies during the bull run of 2004-2007, are due for maturity in the next three years. The stock prices of 138 of these companies are currently below their fixed conversion price.
Early this week, India’s largest steelmaker Tata Steel concluded what merchant bankers call an exchange scheme for $875 million FCCBs due for maturity in 2012. The company got 56 per cent acceptance to its exchange offer, as $493 million of the old FCCBs were exchanged with new ones worth $546 million due to mature in 2014.
EXCHANGE OFFER
Company Announcement FCCB Exchange
Suzlon 21-Jul $93.8 million
Amtek Auto 11-Sep $65 million
Subex Azure* 3-Nov $98.7 million
Tata Steel 20-Nov $546 million
* Approved by the board
Suzlon and Amtek Auto also took this route in the recent past. Both exchanged their old FCCBs with new ones worth $160 million. Subex Azure has taken board approval for exchange of $98.7 million FCCBs. Experts said more companies will take this route.
FCCB is a hybrid instrument that enables a buyer to convert bonds into equity before maturity at a predetermined price. With share prices crashing much below the conversion price, companies came under redemption pressure. This prompted the Reserve Bank of India to open the window for buyback of FCCBs in December last year.
In all, 33 Indian companies bought back bonds worth $643 million using the special window. The companies raised fresh funds or dipped into reserves to use the opportunity of buyback as the converts were available at a discount. The window is going to be closed next month.
“During the height of the credit crisis, convertibles as an asset class were oversold by holders as many of them went into distress. So, FCCBs were selling at a discount,” said
S Ramesh, chief operating officer, Kotak Mahindra Capital Company, a leading domestic investment bank. “Since then, the global credit markets and the general investor situation have improved, leading to a recovery in the convertible bond prices and the consequent reduction of the discount levels,” he said.
Kotak has a collaboration with KBC Financial Products, a market leader in convertible bonds with a global presence. Tanushree Bagrodia, director, KBC Financial Products, said, “While earlier it was mainly companies under stress who were looking to exchange their FCCBs, today more companies are proactively looking to exchange their old convertible bonds with new ones and take advantage of better coupon and conversion rates besides extended tenor.” Investors too prefer this proactive approach as there is a good possibility of the bonds getting converted into equity.
Tata Steel, whose exchange offer for the FCCB got over on Friday, was able to issue new FCCBs at a premium of 15 per cent over the current market price. The new bonds have a coupon of 4.5 per cent. “The lower conversion premium makes the exchange bonds more equity-like, which is in line with the company’s overall deleveraging strategy,” said Koushik Chatterjee, group chief financial officer, Tata Steel.
But the other three companies had to make the exchange offers in distress as their conversion prices were lower than the prevailing stock price, market players said.
http://www.business-standard.com/india/news/india-inc-takes-swap-route-to-beat-fccb-redemption-blues/377139/
Friday, November 20, 2009
Tuesday, November 17, 2009
Investment bankers' bonuses to rise
Investment bankers' bonuses to rise
Abhineet Kumar / Mumbai November 18, 2009, 0:23 IST
Lower transaction fee will not deter companies from going the extra mile to retain talent.
Despite lower fee income from mergers and acquisitions (M&A) advisory business this year, investment bankers can hope for a rise in bonuses as banks try to retain talent.
While headhunters said the average compensation package, which includes a fixed component and a bonus, could swell to 35 per cent over last year’s level, the overall payout could be lower than in 2007, when fund-raising and M&A activity was at record levels.
“Bonuses as a whole are expected to be up 20-30 per cent, but certain top producers or ‘the hitters’ will receive the 2007-level pay in what remains an extremely competitive hiring market,” Options Group, a New York-based global executive search firm, said in a report last week. Bonus payments will be finalised next month.
This is striking as fewer deals have taken place in 2009. According to Bloomberg data, up to November 16, there were 275 M&A deals in India worth $50.9 billion. In the corresponding period last year, there were 557 deals worth $114.7 billion.
However, there were 65 capital market transactions worth Rs 57,300 crore till November 16 this year as against 50 deals worth Rs 22,700 crore in the corresponding period last year.
Along with public issues from private companies, a host of issues by public sector companies are expected to hit the market over the coming months.
Besides, there is expectation of hectic M&A activity in the coming months as companies have deleveraged their balance sheet and are now looking at acquisitions.
“Industry will continue to see top-level churn early next year as M&A advisory and primary market offerings are expected to pick up,” said Saket Jain, managing partner at Vito India, a specialised executive search firm for the investment banking and financial services industry.
“Senior investment banking community in India is a finite pool and banks will do everything to retain top talent, which is pushing compensation levels,” he said.
Last year, investment bankers received 30 per cent of their fixed pay as bonus. Headhunters estimate that this will touch 70 per cent this year. In 2007, some bankers had got nearly 300 per cent of the fixed component as bonuses.
A director-level employee with a global investment banker with over 10 years of experience earned Rs 1 crore fixed compensation and Rs 3 crore bonus in 2007. In 2008, he would have earned about Rs 1.3 crore. This year, he could hope to earn around Rs 1.7 crore, said industry players.
Sourabh Chattopadhyay, executive director at Options Group, said, “The payment of bonus could be top heavy with the bulk going to top producers.” Directors and managing directors are top revenue generators and some of them could touch the bonus level of 2007.
“Business heads would like to keep their teams intact as the industry builds up for good times,” he said.
But R Suresh, managing director, Stanton Chase International, a global executive search firm, cautions. “Despite excellent India performance, the global performance of a bank is going to weigh heavily on the total compensation,” he said.
“Banks are trying to protect their turf, doing everything such as offering mid-year bonuses from next year onwards to make it difficult for other firms to poach their employees,” said Manisha Deva, client partner, global finance practice for Korn Ferry International.
http://www.business-standard.com/india/news/investment-bankers/-bonuses-to-rise/376757/
Abhineet Kumar / Mumbai November 18, 2009, 0:23 IST
Lower transaction fee will not deter companies from going the extra mile to retain talent.
Despite lower fee income from mergers and acquisitions (M&A) advisory business this year, investment bankers can hope for a rise in bonuses as banks try to retain talent.
While headhunters said the average compensation package, which includes a fixed component and a bonus, could swell to 35 per cent over last year’s level, the overall payout could be lower than in 2007, when fund-raising and M&A activity was at record levels.
“Bonuses as a whole are expected to be up 20-30 per cent, but certain top producers or ‘the hitters’ will receive the 2007-level pay in what remains an extremely competitive hiring market,” Options Group, a New York-based global executive search firm, said in a report last week. Bonus payments will be finalised next month.
This is striking as fewer deals have taken place in 2009. According to Bloomberg data, up to November 16, there were 275 M&A deals in India worth $50.9 billion. In the corresponding period last year, there were 557 deals worth $114.7 billion.
However, there were 65 capital market transactions worth Rs 57,300 crore till November 16 this year as against 50 deals worth Rs 22,700 crore in the corresponding period last year.
Along with public issues from private companies, a host of issues by public sector companies are expected to hit the market over the coming months.
Besides, there is expectation of hectic M&A activity in the coming months as companies have deleveraged their balance sheet and are now looking at acquisitions.
“Industry will continue to see top-level churn early next year as M&A advisory and primary market offerings are expected to pick up,” said Saket Jain, managing partner at Vito India, a specialised executive search firm for the investment banking and financial services industry.
“Senior investment banking community in India is a finite pool and banks will do everything to retain top talent, which is pushing compensation levels,” he said.
Last year, investment bankers received 30 per cent of their fixed pay as bonus. Headhunters estimate that this will touch 70 per cent this year. In 2007, some bankers had got nearly 300 per cent of the fixed component as bonuses.
A director-level employee with a global investment banker with over 10 years of experience earned Rs 1 crore fixed compensation and Rs 3 crore bonus in 2007. In 2008, he would have earned about Rs 1.3 crore. This year, he could hope to earn around Rs 1.7 crore, said industry players.
Sourabh Chattopadhyay, executive director at Options Group, said, “The payment of bonus could be top heavy with the bulk going to top producers.” Directors and managing directors are top revenue generators and some of them could touch the bonus level of 2007.
“Business heads would like to keep their teams intact as the industry builds up for good times,” he said.
But R Suresh, managing director, Stanton Chase International, a global executive search firm, cautions. “Despite excellent India performance, the global performance of a bank is going to weigh heavily on the total compensation,” he said.
“Banks are trying to protect their turf, doing everything such as offering mid-year bonuses from next year onwards to make it difficult for other firms to poach their employees,” said Manisha Deva, client partner, global finance practice for Korn Ferry International.
http://www.business-standard.com/india/news/investment-bankers/-bonuses-to-rise/376757/
Saturday, November 7, 2009
Foreign bond market hums again as spreads decline
Foreign bond market hums again as spreads decline
Abhineet Kumar / Mumbai October 16, 2009, 0:10 IST
The 18-month drought is about to end, with several Indian companies and financial institutions planning to tap the foreign bond markets, now that spreads have declined 200 to 300 basis points.
Spreads are the rate that is paid over the benchmark Libor (London Inter Bank Offered Rate) as the cost of borrowing for overseas bonds.
According to Prime Database, a Delhi-based firm providing data for capital markets, six entities including Tata Group’s holding company, Tata Sons, and four banks plan to raise over $12 billion (around Rs 55,000 crore) through various instruments like issuance of bonds in the foreign markets.
The last such issue was by State Bank of India (SBI) in April 2008 to raise Rs 467 crore. It was the only issue in that year after the liquidity crunch pushed spreads to 600 to 700 basis points over Libor for five-year bonds. Before the credit crunch in 2007, the spread for five-year bonds were 60 to 70 basis points. Indian companies raised Rs 35,185 crore from the foreign market that year.
Investment bankers say SBI is now planning to raise $1 billion (about Rs 4,700 crore) by issuing bonds in the foreign market at the rate of 200 basis points over Libor. The road show for the issue will start this week.
Banks such as HDFC Bank, ICICI Bank, Bank of Baroda are also firming up their plans to tap the foreign bond market along with SBI. The other entity includes non-banking finance company, India Infrastructure Finance Company.
“Traditionally, dollar funds have been cheaper than rupee funds,” said Prakash Subramanian K V, managing director, capital markets, Standard Chartered Bank. “But the credit crisis resulted in rising spreads on Indian credits, making it difficult for them to raise dollar funds. Over the last quarter, the dollar markets have shown signs of interest in Indian credits and spreads have also come off substantially,” he added.
Ravi Kapoor, managing director, capital markets at Citi Global Markets India, said spreads had tightened substantially, making the foreign bonds market attractive again. “Companies and banks also need to diversify their funding base,” he said.
“Foreign bonds are also popular for raising resources for over 10-year period,” said Prithvi Haldea, chairman and managing director, Prime Database.
Abhineet Kumar / Mumbai October 16, 2009, 0:10 IST
The 18-month drought is about to end, with several Indian companies and financial institutions planning to tap the foreign bond markets, now that spreads have declined 200 to 300 basis points.
Spreads are the rate that is paid over the benchmark Libor (London Inter Bank Offered Rate) as the cost of borrowing for overseas bonds.
According to Prime Database, a Delhi-based firm providing data for capital markets, six entities including Tata Group’s holding company, Tata Sons, and four banks plan to raise over $12 billion (around Rs 55,000 crore) through various instruments like issuance of bonds in the foreign markets.
The last such issue was by State Bank of India (SBI) in April 2008 to raise Rs 467 crore. It was the only issue in that year after the liquidity crunch pushed spreads to 600 to 700 basis points over Libor for five-year bonds. Before the credit crunch in 2007, the spread for five-year bonds were 60 to 70 basis points. Indian companies raised Rs 35,185 crore from the foreign market that year.
Investment bankers say SBI is now planning to raise $1 billion (about Rs 4,700 crore) by issuing bonds in the foreign market at the rate of 200 basis points over Libor. The road show for the issue will start this week.
Banks such as HDFC Bank, ICICI Bank, Bank of Baroda are also firming up their plans to tap the foreign bond market along with SBI. The other entity includes non-banking finance company, India Infrastructure Finance Company.
“Traditionally, dollar funds have been cheaper than rupee funds,” said Prakash Subramanian K V, managing director, capital markets, Standard Chartered Bank. “But the credit crisis resulted in rising spreads on Indian credits, making it difficult for them to raise dollar funds. Over the last quarter, the dollar markets have shown signs of interest in Indian credits and spreads have also come off substantially,” he added.
Ravi Kapoor, managing director, capital markets at Citi Global Markets India, said spreads had tightened substantially, making the foreign bonds market attractive again. “Companies and banks also need to diversify their funding base,” he said.
“Foreign bonds are also popular for raising resources for over 10-year period,” said Prithvi Haldea, chairman and managing director, Prime Database.
Subscribe to:
Posts (Atom)
Posts
